Time To Buy Amazon (AMZN) Stock At A Discount After Disappointing Earnings?

Amazon (NASDAQ:AMZN) stock sunk after it posted disappointing earnings results last week, but the stock has already recovered most of those losses. Still, shares of Amazon rest 13% below their 52-week highs, which means investors should see if now might be time to buy AMZN stock on the dip.

Quick Q3 Recap

Amazon’s adjusted Q3 earnings slipped over 26% from the year-ago period to $4.23 per share, which fell short our quarterly estimates. Meanwhile, the e-commerce powerhouse’s Q3 revenue jumped roughly 24% to reach $69.98 billion to top our projection.

Investors should note that this marked a better performance compared to the second quarter’s 20% sales growth, as well as Q1’s 17% and Q418’s 20%. However, the recent period represented a slowdown from Q3 FY18’s 29% revenue growth.

Amazon Overview

The chart above shows us something that is somewhat unfamiliar in recent years: Amazon stock has just outpaced the S&P 500 over the past 12 months, up 15.3% against the index’s 13.7%. With that said, AMZN shares have climbed 60% in the last two years to easily top Apple’s (NASDAQ:AAPL) 49% and crush the S&P's 17%.

Along with AMZN’s long-term strength, Amazon executives noted that its quarterly earnings slipped on the back of higher-than-projected costs associated with rolling out one-day shipping. The Seattle powerhouse’s shipping costs jumped 46% to $9.6 billion as it competes to once again stand out against rivals such as Walmart (NYSE:WMT) , Target (NYSE:TGT) , Costco (NASDAQ:COST) , and others. “We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery,” CEO Jeff Bezos said in prepared remarks.

“Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers.”

Expansion Plans

Even as Amazon continues to grow its AWS cloud computing business, which has helped increase its margins and allow it to expand into new areas, retail remains its largest segment. For example, online store sales, third-party seller services, and physical stores accounted for roughly 75% of total quarterly revenue. This is why Amazon’s Prime-heavy subscription services’ growth remains key.

Subscription services posted the second-largest segment growth at 35% in the third quarter, tied with AWS and behind only its advertising-heavy ‘other’ leg’s 45% expansion. On that note, Amazon is now the third-largest digital advertiser in the U.S., behind only Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) .

Amazon continues to expand further into everything from logistics to pharmaceuticals. Plus, Amazon Prime video looks poised to compete alongside Netflix (NASDAQ:NFLX) , Disney (NYSE:DIS) , Apple, and others in the streaming TV market for years to come, as it adds more live sports rights to its growing library of original content.

Outlook

Moving on, our current Zacks Consensus Estimates call for the company’s fourth-quarter sales, which includes the vital holiday shopping period, to jump 20% to reach $86.88 billion. Peeking further ahead, AMZN’s full-year fiscal 2019 sales are projected to pop 19.7%, with 2020 expected to come in 18.2% higher.

Both of these full-year estimates represent slower expansion compared to Amazon’s roughly 30% top-line growth between 2016 and 2018. However, these growth projections come in somewhat in line with 2015’s 20.2% growth and 2014’s 19.5%.

At the bottom end of the income statement, Amazon’s adjusted fourth-quarter earnings are projected to pop nearly 12%, to help lift FY19 by 17%. Then the company’s full-year fiscal 2020 EPS figure is expected to soar 37% above our current year estimate.

Bottom Line

AMZN stock is trading at 2.7X forward 12-month Zacks sales estimates. This represents a discount against the S&P 500’s 3.2X average and cloud computing rival Microsoft’s (NASDAQ:MSFT) 7.4X.

Better yet, Amazon has traded as high as 3.7X over that last two years and holds a 3X median, which means its valuation picture is relatively solid, especially when we consider that Amazon’s forward earnings multiple finally looks somewhat reasonable—as far as growth-focused tech firms go.

Amazon has also continued to spend money in Washington D.C. as it faces more government scrutiny alongside the likes of Facebook, Apple, and others. The e-commerce giant must also fight off more challengers in the growing cloud computing market, namely its chief rival Microsoft.

Amazon has received a few negative earnings estimate revisions since it reported its Q3 results, which helps it hold a Zacks Rank #4 (Sell) at the moment. However, Amazon stock boasts "A" grades for both Growth and Momentum in our Style Scores system and looks like it might be worth considering as a longer-term buy right now based on its overall expansion efforts and its current price point.

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